Loans for a down payment only?

November 16, 2023

by a searcher from University of San Francisco in Redwood City, CA, USA

I'm working with a seller who is willing to do a significant seller note over quite a few years. However, the down payment he is likely going to ask for is more that I can handle.

Are there alternative types of loans (to SBA) that would make sense here, for the purpose of covering the down payment only?

(SBA is a great program, but the approval timeline isn't going to align with our target close date)

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Reply by an intermediary
from Clemson University in Raleigh, NC, USA

By SBA guidelines, the down payment cannot be borrowed. The only options for a loan with an SBA guarantee is to season the funds for a minimum of 90 days or include the individual as an equity owner and co-guarantor on the entire note, OR instead of the seller providing traditional seller financing utilize the current (as of 8/1/2023) program whereby the seller puts 10% of seller note as buyer equity (down payment). This 10% will be on full standby for the first 24 months of the 10-year term. I do not anticipate this program is going to last, but technically it's available now and the seller would receive 90% of the purchase price at closing.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

^redacted‌. Thank you for including me. Depending on complexity and how well organized you and the seller are with your financial information, we have seen deals close in 45 to 60 days on the SBA side. Typically Bank financing is going to be in the same range. However, SBA financing is going to be much easier to get done. The biggest issue you are going to have here is finding a conventional lender willing to do such a small amount and if the seller is carrying that much back, my guess is the seller may not be willing to give another lender a first lien on the business assets that they are going to require. The only other option you would have would be to raise outside equity or find someone to lend you the money personally, most likely friends or family. It is likely the terms you would get from a seller are going to be better than those you would get on an SBA 7A loan. Happy to discuss in more detail.

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